Why We Sold Gilead Sciences (GILD)

February 25, 2019

We started buying Gilead Sciences over 1 year ago. Over a week ago we sold it. Our original thesis on Gilead was 5-fold: 1) a stabilization of its HCV business (which had been declining), 2) its leading HIV treatments, 3) potential progress in developing CAR-T therapies after acquiring Kite Pharmaceuticals, 4) the possibility of acquiring another company with a strong pipeline, and 5) Gilead’s lead position in developing a NASH (Nonalcoholic Steatohepatitis) drug.

Two pieces of bad news about Gilead’s drug pipeline were recently revealed.

First Gilead reported taking a write down of $820 million on the anti-BCMA CAR-T therapy to treat myeloma. Gilead paid $12 billion for Kite Pharmaceutical and its CAR-T therapy platform. While this treatment is just one indication it is an ominous sign that only one year later Gilead is already writing down parts of its acquisition. Combine this with the slow adoption of the FDA approved CAR-T therapy Yescarta, it makes us wonder if more write-offs are coming.

The second piece of news was the reported failure of Gilead’s NASH drug Selonsertib in its phase 3 trial. An effective NASH drug would be a blockbuster and Gilead needs another blockbuster drug right now. Like its HCV drugs, Solonsertib would be the backbone for the development of other NASH drugs that would be used in combination with Selonsertib. A first to market NASH drug would’ve been a financial boon to Gilead. These hopes are gone for now. There are many other companies that are developing NASH drugs and one of them will now likely be the first to market.

Finally, after our initial purchase, Gilead’s HCV business continued to deteriorate due to increased competition and declining patient starts.

Three strikes to our investment thesis and we’re out.

While we were re-evaluating our position in Gilead a new opportunity emerged, eBay. Unlike Gilead who’s potential catalysts are further away, eBay has two big near term catalysts. eBay attracted an activist shareholder that wants eBay to spin-off its two attractive and non-core assets, and eBay initiated a dividend at a 1.56% yield. We think eBay is a better investment opportunity right now so we sold Gilead and purchased eBay. We will discuss eBay further in an upcoming Dividend Letter.